What is game theory?
You would think game theory has something to do with sports..you are close…but not exactly. It is much more than that. Game theory is a lot about applied mathematics, lot about probability, lot about how two monopolistic competitor out smart each other ( decide on winning strategies)in an effort to win market share.
Why am I talking about game theory here, because I am passionate about technical analysis of the financial markets and game theory is used in this area as well. Here’s how to look at it. A hedge fund manager knows that good trades doesn’t always work out. A good trade is one that has higher probability of success,but that doesn’t mean that it will always be profitable. Those of us who have background in game theory understand this well. To quote one of my mentors in this area and a successful hedge fund manager “The statistics are only meaningful when looking at a string of numbers. For example, in professional football, not every play is going to gain yardage. What percentage of games do you need to win in order to make the playoffs? It’s a number much smaller than most of us are willing to accept in our own win/loss ratios!” I couldn’t have said it any better, I leave it to the market wizard to sum it up for me!
